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An
often-noted feature of the Indian economy is a lack of correspondence
between trends in shares in GDP of the principal sectors and their
shares in employment. In particular, while the share of the agricultural
sector in GDP has fallen over time, the proportion of the population
earning a livelihood in the rural areas has more or less stagnated. One
obvious reason for this is the failure of urban economic activity, in
particular organised manufacturing, to absorb labour to any substantial
degree. In fact, rural-urban migration even to the extent that it has
occurred has been accompanied by a burgeoning of the urban non-formal
sector, as we note below.
However,
what is even more disconcerting is that agriculture too has been losing
its capacity to absorb labour in adequate measure. In fact, an analysis
of the National Sample Survey data on agriculture not only points to a
deceleration in the rate of growth of agricultural workers during the
1990s, but for some time now analysts have reported a decline in the
elasticity of employment in agriculture with respect to output.
Based
on such evidence, it has been argued that rural non-agricultural
employment must be promoted both as the principal means of absorbing
surplus rural labour and as a vent for such surplus labour within the
rural sector itself. Not surprisingly, when the NSSO’s surveys of
employment relating to 1972-73, 1977-78, 1983 and 1987-88, pointed to a
sharp rise in the share of rural non-agricultural employment in total
rural employment (especially in the case of males), many analysts
welcomed the trend as a positive development that needed to be
sustained. The reversal of that trend between 1987-88 and 1993 and its
revival subsequently, have also been a matter of much debate.
The
positive assessment of the growth of rural non-farm activity stems from
the perception that under certain conditions there can exist rural
linkages of a kind that permit a ‘holistic’ development of the rural
areas so that the concomitant of agricultural growth, which generates
additional incomes and new demands, some of which can be met with local
resources and skills, is a process of occupational diversification in
the rural sector itself. This reduces the dependence on the development
of urban centres for generating a significant quantum of employment
outside agriculture and offers an alternative to the ‘dualism’
characteristic of development in the present-day developing world.
In
practice, however, there are a number of constraints to the realisation
of such a process of rural development. Principally, increases in rural
incomes lead to an increase in demand for manufactures of a kind
produced in factories located at urban centres. This would be
particularly true either when per capita incomes exceeds some critical
minimum level or when income inequalities ensure that increases in
income tend to be concentrated more among the well to do sections of the
population. This implies that non-farm activities in the form of rural
manufacturing would be more the exception than the rule.
The
evidence suggests that rural industries and services are of many kinds.
The three main forms of rural industry remain: (i) the production of low
quality and cheap varieties of goods meeting certain kinds of needs
using locally available raw materials (for example, beedi-making, bamboo
work and earthenware production); (ii) agro-processing such as rice
milling and production of puffed rice; and (iii) the transitional
location of modern industry in rural areas which leads over time to
these areas being absorbed as urban centres. (The only exceptions to
this are crafts like handlooms, which historically have tended to be
concentrated in certain centres).
As
far as the first of the above-noted versions of rural industry is
concerned, it reflects the low level of per capita income among the
lower income deciles of the population in a region, which has prevented
the diversification of their demand in favour of modern manufactures.
The number of such deciles would of course depend on the average level
of per capita incomes in the region and the degree of inequality.
However, given the fact that modern factory-based production does not
tend to be located too close to sources of demand, but rather
compensates for higher transportation costs through the higher
productivity and better quality associated with mass production, we
should expect that as the share of the population whose real per capita
income exceeds a critical minimum increases, there would be a tendency
for rural-based manufacture of basic consumption goods to actually
decline, with an associated decline in the employment generated by such
activities.
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